Though investing in equity through mutual funds via Systematic Investment Plan (SIP) is getting pace of late, mutual fund houses have been vary of the investor discontinuing the SIP when the market corrects or is volatile. So to ensure that the investors do not discontinue SIP, the mutual funds are offering free life insurance cover in case SIP is not discontinued. Presently three mutual funds houses offer it. ICICI Prudential Mutual Fund offers it as “SIP Plus”, Reliance Mutual Fund offers it as “SIP Insure” and Aditya Birla Mutual fund as “Century SIP”. The life insurance cover is linked with to value and tenure of SIP. It is free as the cost of group life insurance is borne by asset management company. Let us understand how it works
Who is eligible for this benefit
Anyone who has completed 18 years and have not completed 51 years can enrol with theses mutual fund houses to avail this. Moreover for availing this benefit, you have to specifically opt for the scheme. This benefits of free life insurance is available only on selected schemes as notified from time to time only. Reliance however offers this facility on all the equity and hybrid schemes.
How much insurance is available
For all three products, insurance is 10 times of the monthly SIP for first 12 months, it goes up to 50 times for second year for all three products but it is 120 times after the third year for Reliance and 100 times for Aditya Birla and ICICI. In terms of absolute amount the life insurance cover available is capped at Rs. 21 lakhs for Reliance (increased to Rs. 50 lakhs from 1st June 2018), Rs. 25 lakhs for Aditya Birla and a higher of 50 lakhs for ICICI. So though in term of number of times of monthly SIP amount, the insurance cover for Reliance is higher but in absolute monetary terms ICICI offers almost the double than that offered by others. The amount of insurance is available for all the schemes taken together under same or different folio for the same first holder. The insurance is available for the first holder only and not for all the joint holder under the scheme.
When the insurance begins and ceases
The insurance cover commences after a waiting period of 45 days but for accident there is no waiting period and it becomes available the moment the first SIP is debited. Like normal life insurance policy the death due to suicide is covered after one year only
The insurance cover ceases once you complete the age of 55 years for Reliance and ICICI but for Aditya Birla it continues till 60 years. The insurance cover also ceases as soon as the tenure of the SIP is over so the insurance cover is available as long as the SIP continues and discontinues once the SIP discontinues. Even if you redeem money partly or fully out of the money invested during the SIP period, the insurance cover ceases immediately. The insurance also ceases in case SIP is returned unpaid for specified number of consecutive months which vary from fund house to fund house. For ICICI it is five consecutive occasions. In case of Reliance and Aditya Birla the insurance cover will cease if the SIP is not paid on four consecutive or different occasions.
In case the SIP is stopped after 3 years the insurance does not cease and continues subject to maximum amount available under the scheme. However if the SIP is stopped before completion of thee years the insurance cover ceases immediately.
Tenure of the SIP
For being eligible under the scheme the tenure of SIP has to be specified in advance and has to be minimum of thee years but generally there are no restrictions on SIP continuing beyond 55 years when the insurance cover ceases.
In case of ICICI and Reliance if the investor redeems the investments before one year the regular exit load, as applicable to the scheme, is charged if one exits before one year. However in case of Century SIP there are steep exit load of 2% if the units invested under this benefit are redeemed within one year and 1% for investments redeemed after one year but before three years.
Benefit of the product
Since a certain sum as expressed in terms of number of times of amount of your monthly SIP is covered under these products, you are assured that in case some thing happens to you during the SIP period, the goal for which the investments is being made will not get jeopardised as in case of premature death, though corpus of the fund invested by you may not be sufficient but the same would be available through the insurance claim.
Though the insurance cover is free but your choice of fund house or scheme should not be dictated by this benefit only and the choice should primarily be based on the potential of performance of the scheme in which you wish to invest. However in case you have equally performing schemes from all the three funds houses, you should opt for schemes of ICICI prudential or Reliance due to higher life insurance cover and lower exit load offered by it. If the Reliance hs better performing shcme, it even scores over even ICICI in terms of number of times of your monthly SIP, the life insurance cover is available.
Balwant Jain is a tax and investment expert and can be reached at [email protected] and @jainbalwant on twitter.